Times like these are the reason why you always keep some cash in your portfolio.

When the market is tanking, when there is blood in the streets, you wait for the knife to hit the ground and then you pick up some bargains. Walt Disney (NYSE:DIS) stock is currently one such bargain.

Disney stock rose this year on rumors about Star Wars: The Force Awakens, then fell on the news, which is that the picture was a mammoth hit, blowing past Avatar to become the most successful movie of all time.

At the time of writing, Disney stock was sitting at $99.25 (Jan 8 closing price), down from twin peaks of $120 earlier in the year. That’s a Price/Earnings multiple of 20, based on trailing year earnings. The analyst consensus for its next earnings, due on February 9, are for earnings of $1.43 per share, against $1.27 a year ago. Revenue is expected to come in at $14.65 billion.

My guess is Disney will deliver a beat on both these numbers, meaning your near-term deadline for getting into this stock is February 9, when those earnings numbers are scheduled to be announced.

The usual reason given for the stock’s fall, which began in late November, is “cord-cutting” and the subscriber losses at ESPN, the company’s complex of sports networks. Disney also owns some other channels subject to cord-cutting, including its flagship Disney Channel, A&E, and ABC Family. It also owns the ABC Television Network, which was previously disintermediated by cable.

Disney, in short, has rights to most of the durable characters your kids love, and has proven fully capable of fully monetizing them, right down to Miss Piggy’s squeak. Licensed characters tend to have a very long shelf life, and that life is extended when new products are built around them, even if these efforts fail in first run, as ABC’s re-boot of The Muppets TV series failed.

With the S&P 500 trading at a Price/Earnings ratio of 21.74, Disney stock at 20 is a bargain, especially given its proven capability of expanding earnings. Once the high-priced sports contracts ESPN bought over the last few years come up for renewal, at more reasonable prices, Disney stock is going to really take off.

Walt Disney Stock Articles & Video

Walt Disney stock has underperformed the consumer discretionary sector and the broader market. This follows fears that ESPN subscriber growth is in tailspin mode and might not recover. ESPN subscriber decline is, however, moderating and Disney's Media Networks segment could return to growth in 2017.

Disney experienced heavy losses in ESPN again this quarter but the stock price hasn't followed suit and has actually rallied meaningfully. I still like Disney as a long due to its numerous competitive advantages that protect the downside. Risk management is key. Buying in the money calls or call spreads significantly reduces one's risk while waiting for the stock to rise.

Entertainment Giant, The Walt Disney Company is scheduled to report its Q4 earnings on Nov 10. Wall Street expects the company to report EPS of $1. 16 on revenue of $13. 52B. Can the company cap off the year with a strong performance and reverse the downtrend in the Disney stock price?

Cash Flows, Earnings and Revenues are all re-accelerating despite the share price tanking. ESPN although almost written off by the market is still a huge cash cow for the company. Disney franchises have reshaped the company to include adults. This strategy will pay huge dividends over the long term

I am not an investment advisor, and my opinion should not be treated as investment advice.

I am not being compensated for this post (except possibly by Amigobulls).

I do not have any business relationship with the companies mentioned in this post.

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Comments on this article and DIS stock

A company that makes you happy and gets you out of yourself.....there is something to be said for that!!

1 • reply

loveprotocal - Feb 01, 2016 at 11:28 PM

bullish

This stock deserves a huge increase with the earning report !! It has been very unfairly undervalued even as 22 of the leading investment firms including JP Morgan and the Bank Of America have reaffirmed confidence in it which gives it a buy rating overall with projections as high as 130 dollars a share. The wall Street Journal and Barrons call it a buy. So many finance agencies and banks continue to add shares to their portfolio's. Disney has added 12 million new international Espn subscriptions over the last year which wipes out any domestic "losses". The brand is strong and ever seeking new markets for its products!!

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